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Preventing slippage of NPA accounts (Early recognition of the problem…
Preventing slippage of NPA accounts
Early recognition of the problem
Recourse to new ordinance
SARFAESI, IBC etc
Early alert system
Designated time limit
Potential NPA list
Recognise the probelm early
Identify the nature of weakness.
Special mention accounts
Bank's policies are usually the reason
Inadequate cash flows and issues with management integrity
If left uncorrected, the potential weakness may result in deterioration of the repayment prospects and subsequent adverse asset classification.
SMA accounts do not require provisioning until they become NPA
Potential weakness and deserves close management attention
Identifying borrowers with genuine intent
Special Investigative Audit. Special limits
Timeliness and adequacy of response
Effect of delay in response and whether the response is enough
Focus on cash flows
Cash flow is more important than fund flow
Management effectiveness
Consortium/multiple financing
Legal and related issues
Government relief
Auditor's responsibility
Lenders can ask for a specific certificate from the borrower's auditor regarding diversion/siphoning of funds.